What is liquid staking and why does it matter?

Liquid staking allows users to retain ownership of their staked tokens while still earning staking rewards.

Liquid staking refers to obtaining a tradable asset in exchange for staking a cryptocurrency in a proof-of-stake blockchain.

In return for staking their tokens with a liquid staking provider, users receive a staked asset or staking derivative called a liquid staking token . LSTs represent staked tokens and can be used as collateral in lending protocols or traded on various DeFi platforms.Decentralized platform Lido Finance lets users stake their ether and receive a staked asset called stETH, or staked ETH, in return. These stETH tokens represent users' staked ETH on Ethereum.

Centralized liquid staking platforms offer convenience for users who may lack the technical expertise for getting started with liquid staking, but it also exposes users to counterparty risks associated with centralized platforms such as insolvency, mismanagement or regulatory issues.

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